Over the last few years, the sports betting market in the United States has been growing at a breakneck speed. Goldman Sachs projects growth rates of up to 40 percent annually in this market over the next 10 years, a projection that has investors rushing to capitalize on the sports juggernaut.
However, investing in sports successfully is a bit more difficult than you might expect. Here’s what you need to know about how to invest in sports and how you can use sports data stocks to take advantage of the growing sports betting trend.
Forget About Sports Teams, Buy Sports Data Stocks
Although it may seem like the best way to invest in sports is to buy shares of publicly traded teams, this isn’t actually the case. The biggest reason for this is that there are relatively few teams that offer shares for public sale. This means that your investment options will be limited and that you may not be able to purchase shares in the most successful sports franchises.
Another problem with buying team shares is that they’re unlikely to produce the kind of gains that you could realize by investing in high-growth stocks. Most teams operate at a loss, preventing them from generating strong future growth.
For an example of how poor sports team growth can be, consider the UK-based Manchester United football club (NYSE: MANU), one of the few teams that trades directly on the NYSE. Over the past five years, the stock’s price has remained largely flat. While it does pay a dividend of approximately 1.2 percent, the growth an investor could have realized gains elsewhere during that period would have dwarfed those dividend payments.
Fortunately, there is an option that makes it possible to invest in the sports market while also realizing gains closer to those of high-growth tech companies: sports data stocks.
Sports data companies take the enormous amounts of raw data generated by sports teams and translate them into actionable insights for franchises, coaches, and sports wagerers.
By 2028, this market is expected to reach $3.44 billion worldwide. Between now and then, it is projected to grow at a compounded annual rate of 21.3 percent. By investing in sports data stocks, you can win in the market, even if your favorite team is having an off season.
Two of the powerhouse stocks in this emerging market niche are Genius Sports (NYSE: GENI) and Sportradar (NASDAQ: SRAD).
These two companies both use cutting-edge technology to draw insights from sports data. As a result, they are both potential candidates for high future growth, particularly as the sports betting market in the United States continues to expand.
Is Genius Sports a Good Buy?
Genius Sports’ recent sales and earnings represent a mixed bag for investors. On the positive side, sales in Q3 rose by an incredible 71 percent to $69.1 million, showing strong growth for the company.
At the same time, however, Genius Sports reported a much higher than expected net loss. Losses rose to $70 million, widening from a scant $1.8 million. The sudden spike in net losses caused the stock to plunge by over 25 percent when the Q3 report came out, in spite of the obviously strong sales performance.
Analyst forecasts, however, paint a very positive picture for Genius Sports. Of eight current forecasts, seven analysts have issued a buy rating. The one remaining analyst rated the stock as a hold.
Price forecasts among the current analyses range from $13 to $32 over the next year. The average of these forecasts places the stock at $23.63, a gain of over 163 percent from its current price of $8.98. Notably, even the most conservative price forecast would still represent a substantial gain.
Together, this information suggests that Genius Sports could be a good stock to buy, if a risky one. Investors who are comfortable with higher-risk positions stand to lock in unusually large profits if analyst price forecasts prove accurate.
Price retreats caused by widening losses could be temporary and create a window of opportunity for investors to buy while the price is lower. With that said, Genius Sports is clearly a volatile holding that could extend its price drop if net losses continue to widen in upcoming quarters.
Sportradar: Buy or Sell?
The other heavyweight in the sports data market, Sportradar, had a very different Q3 than Genius Sports.
Sportradar revenues climbed by 30 percent to $155 million, considerably beating the standing consensus estimate. Unlike Genius Sports, however, Sportradar experienced a narrowing of its losses. The company lost $10.2 million in Q3, down from $17 million a year earlier.
Despite its seemingly strong fundamentals, Sportradar could offer less upside than Genius Sports. Analyst price forecasts fall in a much narrower range, from $27 to $30.
The average price forecast is $28.11, which would represent a gain of 69.8 percent from the current price of $16.56. The buy consensus on Sportradar, however, is stronger than Genius Sports. All 11 analysts who have issued a rating on the stock list it as a buy.
Overall, Sportradar looks to be a strong candidate to buy. With narrowing losses, rapidly growing revenues, and a unanimous buy rating from analysts, the stock seems to be in a very strong position for future gains.
Genius Sports Vs. Sportradar: Which Is Best?
Based on earnings and analyst forecasts, it appears that Sportradar is likely the better stock.
While Genius Sports could offer a very large upside, its recent losses suggest that it is also the riskier of the two stocks.
Sportradar still has considerable potential for gains but does not appear to be as risky as Genius Sports. For investors comfortable with high risk in exchange for the chance of outsized returns, though, Genius Sports could still have potential.
Own the Sports Data Market
The best solution for profiting from the emerging sports data market is to own shares of both Genius Sports and Sportradar. Between the two, these companies have an effective lock on the sports data market.
According to a 2020 Fitch rating, Sportradar is the largest company in its segment, enjoying a 40 percent share of the market for sports betting data. Genius Sports projects securing 30 to 50 percent of the addressable market by 2025, putting it on par with Sportradar.
Owning both, therefore, is an extremely robust strategy for capitalizing on the high anticipated growth of the sports data market over the next several years.
This combined approach also helps to balance the strengths and weaknesses of this pair of stocks. Genius Sports’ potential for outsized growth provides a high-risk, high-return option, while Sportradar is a good choice for safer, more conservative gains.
As a result, the stocks naturally hedge against one another. In a best-case scenario where both companies continue to grow, investors could even realize strong gains from both.
Using sports data stocks, especially Genius Sports and Sportradar, to profit from the rise of sports betting is a strategy with considerable potential. While there are certainly risks, the strong projected growth of sports betting and sports data over the next several years also creates a strong possibility for high returns.
#1 Stock For The Next 7 Days
When Financhill publishes its #1 stock, listen up. After all, the #1 stock is the cream of the crop, even when markets crash.
Financhill just revealed its top stock for investors right now... so there's no better time to claim your slice of the pie.
See The #1 Stock Now >>The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.